Kasich tax proposal could save $500M

Associated Press

COLUMBUS

The new tax structure set to be proposed by Ohio Gov. John Kasich might not lead to a cut in the income tax until 2014 but might save Ohioans a half-billion dollars on those taxes by 2017.

Republican Gov. John Kasich wants to tax shale drilling, and the state would immediately get more revenue from oil and gas companies, according to The Columbus Dispatch, which said it obtained a copy of the plan. The money generated by the drilling tax would be used to help offset the government’s cost of instituting a cut in the personal income tax. The extent of that tax cut could depend on the amount of revenue that’s received, because regulatory fees would be subtracted first from the drilling tax revenues.

The across-the-board income-tax reduction would save the most money for the wealthy and small businesses because they pay more in income taxes. Under one estimate, the income-tax cut could amount to more than 5 percent if the drilling tax generates $500 million to offset it, though some observers cautious that it’s hard to predict what the production and tax revenue will be.

“We could be drilling empty holes, or you could get a lot of production on the front end, and it could be gone before you know it,” said Terry Fleming, executive director of the Ohio Petroleum Council.

Kasich initially wants a 1.5 percent tax on certain oil and natural-gas liquid extracted through the new form of oil and gas drilling known as hydraulic fracturing, and that could increase to 4 percent once a company recovers its capital costs to begin drilling. The tax rate would be 1 percent for dry gas from hydraulic fracturing wells, the newspaper said.

The state now has taxes of 20 cents per barrel of crude oil and 3 cents per 10,000 cubic feet for dry gas.

Under current oil and gas pricing, Kasich’s proposed severance taxes would cost companies nearly $13 million this year.